A Year of Growth Dried up Because of Ash Crisis and Strike
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FINNAIR GROUP FINANCIAL STATEMENT 1 JANUARY – 31 DECEMBER 2010 A year of growth dried up because of ash crisis and strike Summary of 2010 key figures – Turnover rose 10.1% to 2,023.3 million euros (1,837.7). – Passenger traffic declined by 3.6% from the previous year, passenger load factor rose from the previous year by 0.6 percentage points to 76.5% (75.9) – Unit revenue in flight operations per revenue tonne kilometre rose 3.4%, unit costs per available tonne kilometre rose 4.6% – In scheduled traffic, unit revenue per passenger kilometre (RPK) rose by 9.3%. – The operating result was a loss of 13.3 million euros (114.9 loss) – The operational result, i.e. EBIT excluding non-recurring items, capital gains and changes in the fair value of derivatives and in the foreign exchange rates of overhaul provisions, was a loss of 4.7 million euros (171.1 loss), including the estimated negative impact of the ash crisis of 30 million euros and the cabin staff strike 25 million euros – The result before taxes was a loss of 33.0 million euros (124.6 million loss) – The net operational cash flow was 61.1. million euros (-120.6) – Gearing at the end of the year was 27.8% (26.8) and gearing adjusted for leasing liabilities was 79.6% (90.0) – Balance sheet cash and cash equivalents at the end of the year totalled 526.9 million euros (607.4) – Equity ratio 36.2% (34.2) – Equity per share 6.67 euros (6.45) – Earnings per share -0.24 euros (-0.76) – Return on capital employed -0.4% (-7.8) – Operational flight punctuality 80.8% (84.8) Profit guidance for 2011 The first quarter operational result is expected to be a sigfinicantly loss-making. Turnover is expected to grow by more than 10% and the operational result for the full year is expected to be in profit. Summary of final quarter key figures – Turnover rose by 12.9% to 516.9 million euros (457.7) – Passenger traffic (ASK) declined by 7.5% from the previous year – In scheduled traffic, unit revenue per passenger kilometre improved by 15.3% – Unit revenue in flight operations per revenue tonne kilometre rose by 7.0% – The operational result was a loss of 6.7 million euros (37.7 loss); the direct negative impact of the cabin staff strike was 25 million euros – The net operational cash flow was 12.7 million euros (-6.4) 1 In the financial statement bulletin, figures for 2009 are presented in brackets after the 2010 figures. President & CEO Mika Vehviläinen on the result for the year: 2010 began weakly, but the situation rapidly improved when travel demand picked up strongly during the first quarter. In cargo demand, the recovery was already evident in late 2009. The strong improvement suffered a setback due to the volcanic ash crisis, but quickly recovered, and in the third quarter profitability clearly improved. Due to efficiency measures, we were able to reap the benefit of improving demand and price levels as well as a tailwind provided by the strengthening of key sales currencies. Last year we witnessed much that was good in the development of our operating environment. The final quarter, however, was adversely affected by an unfortunate labour dispute, which undermined the progress made last year. Without disruption, the final quarter performance would have been strong. Last year, we managed to restrain growth of personnel costs by stabilization agreements and a collective agreement with pilots; the agreement lowers pilots' unit costs. With the ending of stabilization agreements this year’s challenge is to further reduce overall unit costs in order to improve our competitiveness. With cabin personnel, we made recently a new three-year collective agreement, which contain some elements improving productivity. We are committed to the company's success, which we have expressed by updating our vision and by initiating an identity renewal and change of operating culture. Success also requires that we continue our work and implement structural changes during the coming year. There is still room for improvement in work productivity. It is to our benefit that we can undertake this work as traffic grows. Thus once again, like a rally driver, we are pressing the brake and accelerator at the same time. In this way, however, we can both improve our performance and take advantage of growth opportunities in our operating environment, particularly in Asia– Europe traffic, which is our main strategy. Our recently launched new visual and service identity will support our determination to grow in the Nordic countries as well as in the Asian traffic. I would like to thank our customers and shareholders, and our personnel for the work they have done in often difficult circumstances. Market and General Review 2010 began in conditions of lower demand and price levels than the previous year. Cargo demand had already resumed growth in late 2009, which was reflected in 2 improving cargo prices during spring 2010. Passenger demand picked up during the first quarter. Structurally, Finnair progressed in line with the general development of the sector. The positive development of unit revenue in Finnair's scheduled traffic was stronger, however, than the rest of the sector, owing to a change in the structure of demand. Business travel demand rose quickly in traffic between Europe and Asia. Nearly all of European air traffic was affected by the ash cloud that followed the volcanic eruption in Iceland in April-May. Around 100,000 flights were cancelled due to flight restrictions over the course of a week. Finnair, too, suffered significant losses due to the traffic chaos. In addition, Finnair's traffic was disrupted by a ten-day long strike by cabin staff in December. Without the traffic disruptions experienced, Finnair's financial year 2010 would have been in profit. Last year Finnair implemented many efficiency measures, which helped production costs to rise clearly more slowly than turnover. Profitability improved from the deep loss of the previous year, but is still far from the company's financial targets. The focus of Finnair's air transport is centred even more than before on Europe-Asia traffic. In addition to the company's own production, Finnair is seeking in European and domestic feeder traffic to add new production options in order to reduce unit costs and increase flexibility. Finnair's vision was updated during the spring. The company's objective is to become the leading airline in the Nordic countries and to be the most desired option in traffic between Asia and Europe. Finnair's visual identity was also renewed to correspond with the sharpened strategy. This work will continue with a renewal of service identity, supported by a development of management culture. The first stage of the long-haul traffic fleet modernisation has been completed. This current year and the next will be characterised by a lower level of investment. The European Airbus A320 fleet, used for scheduled and leisure flights, will receive new A321ER aircraft from 2013 and the next additions to the long-haul fleet will take place from 2014. By then, the Finnair Group's operational profitability must be significantly strengthened. This requires goal-oriented measures in the field of cost efficiency. Finnair has lost market share in the leisure flight market. The goal is to win this market share back using both own production and capacity leased from outside the Group. Package tour demand will pick up with a delay after the recession, but signs of recovery are already visible. Cargo developed strongly in 2010, the recovery having begun in 2009. Finnair took advantage of Asia's strengthening cargo market by launching regular cargo route traffic to Hong Kong, Seoul and New York. Even during the cabin staff strike, cargo was flown on some long-haul passenger aircraft. 3 Financial Result, 1 January – 31 December 2010 Financial key figures in January-December 2010 Key figure, EUR million 2010 2009 Change % Consolidated turnover, 2023.3 1 837.7 10.1 Operational result* -4.7 -171.1 - Operational expenses 2 050.7 2 028.4 1.1 Result before taxes -33.0 -124.6 73.5 Net operational cash flow 61.1 -120.6 - Earnings per share, EUR -0.24 -0.76 - * excluding capital gains, changes in the fair value of derivatives, changes in the exchange rates of overhauls, and non-recurring items Development of traffic volumes and unit revenue in January-December 2010 Key Performance Indicator (KPI) Change % Available seat-kilometres (all traffic) -4.3 Revenue passenger kilometres (all traffic) -3.6 Revenue passenger kilometres (Asian scheduled traffic) 7.9 Passenger load factor (all traffic), 76.5% 0.6 % points Available tonne-kilometres (all traffic) -2.9 Revenue tonne-kilometres (all traffic) 7.6 Cargo carried, change 38.0 Unit costs per available tonne-kilometre 4.6 Passenger traffic, unit revenue per revenue passenger-kilometre 9.9 Cargo traffic, unit revenue per tonne-kilometre 18.8 Passenger and cargo traffic, weighted unit revenue per tonne-kilometre 3.4 Passenger traffic, unit revenue per passenger 10.4 The increase in turnover was due mainly to improved unit revenue in all categories of passenger and cargo traffic as well as volume growth calculated in tonne-kilometres. Cargo traffic volume was increased by dedicated cargo aircraft traffic launched in May 2010. Profitability improved significantly as operational costs remained nearly unchanged, despite 10% growth in turnover. Profitability was adversely affected by the volcanic eruption in Iceland, which led to the spread of an ash cloud that halted air traffic for a week, and by a 10-day strike by cabin staff, which resulted in the cancellation of most of Finnair's flights.